Avoid Estate Taxes with Single Premium Life Insurance
Single premium whole life is most popular in the annuity market. Until a few changes were made in the IRS Tax Code it offered the same type of tax deferral as was available to annuities. Single Premium Life Insurance enables you to preserve and transfer your wealth without passing along estate taxes.
The positive features of Single Premium Life Insurance is that you can grow tax deferred earnings while retaining access to your money. It had its strongest appeal in the annuity market, where it had the same type of tax deferral as annuities but with the ability to make tax-free loans. The benefits over annuities was the death proceeds from single-premium whole life insurance; passed free from any federal income taxes on the gain in value.
New ruling by the IRS
Then the IRS enacted Section 7702A of the Internal Revenue Code that created the concept of a MEC (modified endowment contract). Immediately after the change in the law to designate single-premium whole life insurance as a MEC, sales of Single Premium Whole Life slowed to a trickle. It was commonly held that single-premium whole life insurance had lost its tax status, therefore insurance agents went back to selling annuities and single-premium whole life was shelved.
Single-premium whole life insurance merely lost some of its tax advantage but still maintains its tax status. It is a superior product compared to annuities and continues to make a great deal of sense. The bottom line is that Single Premium Life Insurance enables you to preserve and transfer your wealth without passing along estate taxes.
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